Washington Estate Planning

What is an Immediate Annuity?

An annuity is a contract between you and an annuity provider in which you pay the provider a lump sum of money, and in return you get a guaranteed stream of income. An immediate annuity is “immediate” because you start receiving annuity checks right away – often within a month or so of paying for the annuity. So, who would want an immediate annuity? If you’re retiring without a pension, and you’re uncomfortable with higher-risk investments like stocks, an immediate annuity can be attractive. Its main benefit is that it affords you with guaranteed income throughout your retirement years. What factors do annuity providers consider in deciding how much your monthly payout will be? They look at:

• Type of annuity. There are different types annuity you can choose from, including fixed annuities, variable annuities, and inflation-indexed annuities.
• Term of annuity. When you buy an annuity, you’ll choose a term over which you’ll receive annuity payments. Your payments can last for the rest of your life, for a set period of years, or for the joint lives of you and your spouse.
• Your Age.
• Your Gender. Because women, on average, live longer than men, annuity providers consider your gender in order to predict your life expectancy.

What are the drawbacks of an immediate annuity?

• Usually, your annuity payments stop when you die. So even if you’ve invested a chunk of your retirement savings or other funds into the annuity, once you pass away, your heirs get nothing.
• Similarly, once you pay for your annuity, that lump sum of money is gone forever. If an emergency comes up and you need a large amount of money, unless you have other savings set aside, you could be out of luck.
• Lower risk means a lower rate of return on your investment. When you buy an immediate annuity, you may very well be trading the chance of a higher income stream for the security of knowing at least you’ll get some money each month.

Of course, you should never commit to an investment without fully researching it. For more information about immediate annuities, you can speak to an experienced financial advisor.

Do Your Parents Have an Incapacity Plan?

As our parents age, and especially as they begin to suffer illnesses or lose their ability to function like they used to, it can be hard to know the best way to help. One thing you can do is to make sure your mom or dad has an incapacity plan. There are essential documents that need to be in place so that your family can avoid the need for living probate once an aging loved one is no longer able to handle his or her own financial and legal affairs. Avoid Living Probate What’s living probate? It’s the process of going to court to have a guardian or conservator appointed to manage a disabled person’s finances or other personal affairs. The process can be time consuming, expensive, and – because court proceedings are a matter of public record – embarrassing. With proper planning, it’s something your family won’t have to go through. Elements of an Incapacity Plan Here are the essential documents in an incapacity plan:

1. A Durable Financial Power of Attorney. This document lets your mom or dad appoint a trusted friend or loved one to take over his or her finances and property in the event of mental disability.
2. A Durable Power of Attorney for Healthcare. This is the document that lets your parent name an agent to make important medical decisions on his or her behalf, if there’s ever a time when your mom or dad becomes unable to communicate those wishes.
3. A Living Will. With a Living Will, your parent can leave detailed instructions letting doctors know exactly what level of medical intervention he or she wants during the late stages of a terminal illness, or if he or she is otherwise near death. This is the document that tells doctors whether or not to “pull the plug”, and it can be used to leave more specific instructions, too.

Timing is Key The key to helping your mom or dad avoid living probate is to make sure that they have an incapacity plan in place before they’re too sick or frail to make their own decisions. Once your parent reaches the point where he or she no longer has legal capacity to put these documents in place, your only choice will likely be to go to court for living probate. If you’re concerned about taking the right steps to help your parents as they age, an estate planning attorney can guide you.

Make Sure Your Executor Can Access All Your Accounts

How much time do you spend online each day? If you’re online regularly, chances are you have at least a few online accounts. Between online banking and investing, e-mail, and social networking, it’s easy to have a laundry list of usernames and passwords. So, what happens to all these password-protected accounts when you pass away? If no one has your usernames and passwords, it can be difficult – if not impossible – for your loved ones to access your information. The result? Online bank and investment accounts can be tied up indefinitely, and your loved ones will have no ability to notify Facebook friends and other social networking contacts of your death. And think about all the photos and records that may be stored on your computer – without the appropriate passwords, these items could be lost after you pass away. What can you do? It’s relatively simple. Let your executor know how to access your online accounts and other password-protected information by making a list of each item, along with the appropriate username, password, or PIN number. Here are some items to include:

• Online bank accounts
• Online brokerage accounts
• E-mail accounts
• Your computer, if it’s password protected
• Your Facebook, LinkedIn, Twitter or other social networking accounts
• Your cell phone
• Your blog, if you have one

Once all this information is written down, how do you keep it safe and make sure no one gets to it until after you’re gone? Keep the list with your estate planning documents, and make sure they’re stored in a safe and secure location. A fireproof safe may be a good choice. And, of course, you’ll want to make sure your executor knows where these documents are kept.

What ’s the Status of the Bush Tax Cuts?

Lately, there’s been a lot of buzz about the Bush tax cuts –and the fact that they’re scheduled to expire at the end of this year. So far, Congress hasn’t made any moves to extend the cuts, and although there may be some action taken during the lame duck session over the next few weeks, it’s far from certain that an extension will happen. So, where does that leave you as far as planning is concerned? If Congress doesn’t act by the end of December, one of the major consequences will be that the long-term capital gains rate will jump from the current 15% to 20%. Plus, income tax brackets will adjust, across the board – with the maximum rate increasing to 39.6%. What does this mean, in practical terms? As I recently explained on CNBC, this may be the year to harvest your gains, while leaving your losses until 2011. If you’re holding onto stocks, mutual funds or real estate that you intend to sell over the next few years, you may want to do so before December 31st. Be careful, though. Because Congress could change the law and extend the current tax rates at any time, I’m advising clients to wait until mid-December to pull the trigger. And, it’s essential that you get personalized advice from a qualified financial planner before you make any moves.

What Happens if You Leave Your Spouse Out of Your Will

Disinheriting your spouse is not as easy as you might think. In fact, you can’t simply disinherit your spouse. So, what happens if you try? Washington is a community property state, and, by law, even if you attempt to disinherit your spouse, he or she is entitled to half of the community property of your marriage. What do you control with your will? The other half of your community property, plus all of your separate property. Community Property What’s community property? Very simply put, it’s income the two of you made during your marriage, and the property that was acquired with that income. It also includes income produced by community property. Separate Property Separate property, on the other hand, includes property you owned before you got married, gifts that were given to you during your marriage, and property you inherited while you were married. You Can’t Give Away What Doesn’t Belong to You Under Washington’s community property laws, both spouses own equal shares of the money earned and property bought during the marriage – regardless of whose name is on the title. So, since your spouse owns half the community property already, you don’t have the right to use your Will to give that property away. Figuring out what’s community property and what’s separate property isn’t always simple. If you have questions about community property laws and estate planning, you can talk to a qualified estate planning attorney.

Can You Roll Over an Inherited 401(k) Plan?

It used to be that, if you inherited a 401(k) plan from your spouse, you were in a much better position than non-spouses who inherited 401(k)’s. Spouses Spouses are allowed to roll over inherited 401(k) funds directly into their own, existing IRA. This is a huge benefit, because this rollover is tax-free, and the inherited funds can grow and compound until they’re needed during retirement. Non-Spouses: The Old Rules Until 2007, the rules for non-spouses were not nearly so generous. For most 401(k) plans, a non-spouse beneficiary had to withdraw all the funds from the account within 5 years, paying taxes on the money taken out. So, on top of a possibly sizeable tax bill, the beneficiary lost the potential for tax-deferred growth of the inherited money. Non-Spouses: The New Rules Since 2007, though, non-spouses have been allowed to roll over inherited 401(k) plans – with certain restrictions:

• The 401(k) money has to be rolled over into a newly established, “inherited” IRA. Transferring the money into an existing IRA will trigger a tax bill.
• The money has to be transferred directly by the plan administrator from the 401(k) to the inherited IRA. If the check is sent to the beneficiary, then directly deposited into the IRA, the rollover is no good, and taxes are due.

Required Minimum Distributions As a non-spouse beneficiary, you’ll be required to take Required Minimum Distributions from your inherited IRA each year. The amount of each distribution depends on your life expectancy, as well as the account balance. The good news is that, if you only withdraw the minimum, then the IRA investments still get to grow and compound throughout your lifetime.

What is an Assisted Living Facility?

An assisted living facility is not the same as a nursing home. There are major differences between the two. Here’s an overview: Nursing Homes Nursing homes are equipped to offer intensive, round the clock nursing and medical care to patients who need very close monitoring and supervision. Nursing home residents are usually not in good health and need a great deal of assistance with basic daily tasks like bathing, dressing, feeding themselves, and moving from one place to another. Nursing home residents often don’t get much privacy, and may share a room with another resident. Assisted Living Facilities Assisted living facilities, on the other hand, are set up to provide residents with a maximum amount of independence and privacy, while offering help with certain basic needs. Instead of sharing a hospital-like room with another resident, an assisted living resident would have his or her own apartment. So, unlike a nursing home resident who might need assistance with most basic tasks throughout the day, and assisted living resident is primarily self-sufficient and may only need help with bathing, dressing, preparing food. Generally, meals are provided in a common dining room, and most facilities provide laundry and housekeeping services as well. Because their residents are healthy and primarily self-sufficient, assisted living facilities are geared toward providing monitoring rather than intervention. Staff may keep track of residents’ medications, check on residents in the evening, or coordinate doctor’s appointments. They’re also geared toward providing social activities for their residents, and many provide exercise facilities and classes, as well as coordinating lectures and outings for residents.

What ’s the Difference Between Medicare and Medicaid?

Medicare and Medicaid: the names are similar, they both have to do with healthcare, and it’s easy to get the two confused. But, they’re two very different programs. Here’s a breakdown: Medicare Medicare is operated by the federal government and is intended to provide older Americans – those aged 65 or older – with healthcare. You don’t have to meet any income requirements in order to receive Medicare. And, because it’s federally-administered, requirements and benefits are the same throughout the country. There are actually several different types of coverage within the Medicare program:

• Hospital Insurance, or Medicare Part A, covers basic expenses related to hospital stays and some limited expenses related to nursing home and home health care after a patient is released from the hospital.
• Medical Insurance, or Medicare Part B, offers more general coverage for doctor’s visits, certain lab costs, plus certain outpatient medical expenses, such as physical therapy and medical supplies.
• Prescription Coverage, or Medicare Part D, is just what it sounds like – it covers the cost of certain prescription drugs.

Medicare carries with it annual deductibles and co-pays. Medicaid Medicaid, on the other hand, is state-administered – so the rules concerning qualifying for the program, as well as exactly what’s covered, vary from state to state. Unlike Medicare, which is available to most older Americans regardless of need, Medicaid is a need-based program. So, in order to qualify for Medicaid, you need to fall below certain income and asset limits. Once you qualify, though, Medicaid generally offers more coverage than does Medicare, especially when it comes to long-term care, such as nursing home stays. Also, if you’re 65 or older and you meet the income requirements, you can have coverage through both Medicare and Medicaid. This means that Medicaid can pay your Medicare premiums and deductibles, as well as other healthcare costs not covered by the Medicare program. For information on qualifying for Medicaid for purposes of long-term care, you can talk to an estate planning attorney.

Estate Tax and Inheritance Tax: What ’s The Difference?

An estate tax and an inheritance tax are two entirely different things – and they can both be owed on the same property. Here’s the difference: Estate Tax An estate tax is a tax that’s levied on the total value of a deceased person’s estate. So, when you pass away, if your estate is above a certain value, your estate may have to pay a tax on that value. And it’s your estate, not your heirs or beneficiaries – that owes the tax. Normally, if estate tax is owed, your personal representative files a return and writes a check to the appropriate taxing authority before your remaining assets are distributed to your heirs and beneficiaries. Estate taxes can be assessed on the federal level (although the federal estate tax has been suspended for this year), or on the state level. Inheritance Tax An inheritance tax, on the other hand, is levied on the amount of property that each of your individual heirs and beneficiaries inherits from you. So, with an inheritance tax, when a person inherits property, he or she is responsible for paying the tax, based on the amount of his or her inheritance. There is no federal inheritance tax, although seven states currently have an inheritance tax. Depending on the state, spouses, children, or grandchildren of a deceased person may be exempt from paying an inheritance tax. The state of Washington levies a state estate tax, but no inheritance tax.

5 Smart Retirement Planning Strategies

Don’t you wish building a nest egg could be simple and straightforward? It seems like everywhere you turn, there’s new and contradictory advice about investing. If you followed every emerging trend, you’d never be ready for retirement. Saving for retirement might not be easy – meeting any financial goal requires planning, effort, and discipline. But it doesn’t have to be mysterious and complicated. Here are some common-sense tips for making sure you’re on the right track:

1. Take Advantage of Tax Incentives: If your employer offers a 401(k) or 403(b) plan, don’t miss out on the opportunity for tax-deferred retirement savings – plus employer matching, if it’s available! If such a plan isn’t available to you, start an IRA. The tax benefits offered by these plans increase the value of your retirement savings dollars.
2. Don’t Try to Get Rich Quick: Your goal should be to see a slow, steady return on your money. The younger you are, the more risks you can afford to take with your investments. That being said, however, when it comes to retirement savings, an investment that promises a quick 200% or 300% return is likely not a smart move no matter your age.
3. Keep It Simple: It’s essential to fully understand every investment decision you make. Making a move you don’t fully understand, even if it’s on the advice of a friend or paid advisor who’s more “sophisticated” than you, is almost always a mistake. Do your research, aim to diversify your portfolio, and stay away from commissioned financial advisors. And if you don’t fully understand a financial move, don’t make it.
4. Save, Save, Save. Being prepared to retire on your own terms means that you’ll have to be a disciplined saver – you can’t invest money you haven’t saved.
5. Get Out of Debt. Last but not least, if you’re carrying debt, you should have a plan for paying it off well before retirement. Not only will this give you more money to save and invest in anticipation of retirement, but being debt-free will reduce your living expenses and increase your financial freedom during your retirement years.